Performance 81. Group structure 101

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1 CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 74 Consolidated balance sheet 75 Consolidated statement of shareholders equity 76 Consolidated cash flow statement 77 Notes General information 78 Performance 81 Operating assets and liabilities 89 Capital and financial risk management 97 Group structure 101 Other information 108 Report of the auditors 114 FINANCIAL STATEMENTS OF KOMAX HOLDING AG Balance sheet 118 Income statement 119 Notes 120 Proposal for the appropriation of profit 125 Report of the auditors

2 Consolidated income statement in TCHF Notes 2017 % % Net Sales Other operating income Revenues Change in inventory of unfinished and finished goods Cost of materials Gross profit Personnel expenses Depreciation on property, plant, and equipment Depreciation on intangible assets Other operating expenses Operating profit (EBIT) Financial result Ordinary profit Non-operating result Extraordinary result Group profit before taxes (EBT) Income taxes Group profit after taxes (EAT) Of which attributable to: Shareholders of Komax Holding AG Non-controlling interest 0 0 Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 74

3 Consolidated balance sheet in TCHF Notes % % Assets Cash and cash equivalents Securities 21 0 Trade receivables Other receivables Inventories Accrued income and prepaid expenses Assets held for sale Total current assets Property, plant, and equipment Non-operating properties Intangible assets Investments in associates Deferred tax assets Other non-current receivables Total non-current assets Total assets Liabilities Current financial liabilities Trade payables Other payables Current provisions Accrued expenses and deferred income Total current liabilities Non-current financial liabilities Other non-current liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Share capital Capital surplus Treasury shares Retained earnings Equity attributable to shareholders of Komax Holding AG Total liabilities and shareholders equity Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 75

4 Consolidated statement of shareholders equity in TCHF Notes Share capital Premium Treasury shares Goodwill offset Currency differences Other retained earnings Total retained earnings Equity shareholders of Komax Holding AG Balance on 31 December 2015 (according to IFRS) Swiss GAAP FER adjustments Balance on 1 January 2016 Swiss GAAP FER Group profit after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Dividend paid Purchase of treasury shares Sale of treasury shares Share-based payments Goodwill offset with shareholders equity Currency translation differences recorded in the reporting period Balance on 31 December Balance on 1 January Group profit after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Dividend paid Purchase of treasury shares Share-based payments Goodwill offset with shareholders equity Currency translation differences recorded in the reporting period Balance on 31 December Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 76

5 Consolidated cash flow statement in TCHF Notes Cash flow from operating activities Group profit after taxes Adjustment for non-cash items Taxes Depreciation and impairment of property, plant, and equipment 2.4/ Depreciation and impairment of intangible assets Profit ( ) / loss (+) from sale of non-current assets Expense for share-based payments Net financial result Other non-cash items Interest received and other financial income Interest paid and other financial expenses Taxes paid Increase (+) / decrease ( ) in provisions Increase ( ) / decrease (+) in trade receivables Increase ( ) / decrease (+) in inventories Increase (+) / decrease ( ) in trade payables Increase ( ) / decrease (+) in other net current assets Total cash flow from operating activities Cash flow from investing activities Investments in property, plant, and equipment 2.4/ Sale of property, plant, and equipment Investments in intangible assets Sale of intangible assets 6 6 Investments in associates 0 34 Investments in Group companies and participations Sale of Group companies Purchase of minority interests Decrease in granted loans Sale of securities 0 19 Total cash flow from investing activities Free cash flow Cash flow from financing activities Decrease in current financial liabilities Decrease in non-current financial liabilities Increase in current financial liabilities 0 78 Increase in non-current financial liabilities Capital increase (share-based payments) Distribution out of reserves from capital contributions Dividend paid Purchase of treasury shares Sale of treasury shares Total cash flow from financing activities Effect of currency translations on cash and cash equivalents Increase (+) / decrease ( ) in funds Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Less cash and cash equivalents acquired. 3 Less cash and cash equivalents sold. 77

6 Notes to the consolidated financial statements General information Headquartered in Dierikon, Switzerland, Komax Holding AG (parent company), together with its subsidiary companies (the Komax Group), is a pioneer and market leader in the field of automatic wire processing, providing clients with innovative, future-oriented solutions in any situation that calls for precise contact connections. The present consolidated financial statements were adopted by the Board of Directors of Komax Holding AG on 8 March 2018 and released for publication. Their approval by the Annual General Meeting, scheduled for 19 April 2018, is pending. Accounting policies The consolidated financial statements of the Komax Group are based on the individual financial statements of the Group companies, compiled in accordance with uniform standards, as at 31 December With effect from 1 January 2017, the consolidated financial statements have been drawn up in accordance with the entire existing guidelines of Swiss GAAP FER (Swiss Accounting and Reporting Recommendations). Furthermore, the provisions of the Swiss company law have been complied with. The consolidated financial statements are based on the principle of historic acquisition cost (with the exception of securities and derivative financial instruments, which are recorded at their fair values), and have been drawn up under the going concern assumption. The accounting and valuation principles relevant to an understanding of the annual financial statements are described in the relevant explanatory notes. Adjustments in connection with the change of accounting principles In its media release of 21 March 2017, Komax announced that it was changing its accounting standard from IFRS to Swiss GAAP FER with effect from the 2017 financial year. The change was driven by the following key considerations: The constant widening of the scope of regulation under IFRS and the ever-increasing number of complex and formal detailed regulations. The Swiss GAAP FER accounting standard is particularly suited to the needs of mediumsized companies like the Komax Group. The latter standard continues to guarantee shareholders transparent reporting in keeping with the true and fair principle. The accounting standards applied in the preparation and presentation of the consolidated financial statements for 2017 deviate from the consolidated financial statements for 2016 drawn up in accordance with IFRS in the following key points: a) Goodwill from acquisitions and associated companies Goodwill and technologies from acquisitions and associated companies are directly offset against retained earnings in shareholders equity, in keeping with the option that applies at the point of acquisition under Swiss GAAP FER 30 Consolidated financial statements. Under IFRS, goodwill was capitalized and reviewed for impairment on an annual basis, whereas prior to acquisitions not capitalized technologies were separately capitalized as part of the purchase price allocation process and amortized over their estimated economic lifetime. According to Swiss GAAP FER, they are not separately recognized, but remain subsumed under goodwill. Under Swiss GAAP FER, transaction costs incurred in connection with acquisitions are treated as a component part of acquisition costs. Under IFRS, transaction costs were recognized in the income statement. 78

7 b) Employee benefits Under Swiss GAAP FER 16 Pension benefit obligations, the economic obligations and benefits of Swiss pension schemes are ascertained on the basis of figures drawn up in accordance with Swiss GAAP FER 26 Accounting of pension plans. The economic impact of the pension schemes of foreign subsidiaries is ascertained in accordance with locally applied valuation methods. Employer contribution reserves and comparable items are capitalized under Swiss GAAP FER 16. Under IFRS, defined-benefit pension plans were calculated according to the projected unit credit method and recorded in the balance sheet in accordance with IAS 19. c) Tax-loss carry forwards Komax has elected not to capitalize future tax savings from offsettable tax-loss carry forwards. The use of these tax-loss carry forwards is recorded upon realization. Under IFRS, deferred tax claims in connection with tax losses were taken into account to the extent that it was deemed probable that future taxable profits would be generated so that these losses could be used in the foreseeable future. d) Deferred income taxes The above-mentioned valuation and accounting adjustments have the corresponding repercussions for deferred income taxes in the balance sheet and the income statement. e) Reclassification in shareholders equity As part of the changeover to Swiss GAAP FER, the cumulative currency translation differences were reset/reversed as of 1 January 2016 and offset against retained earnings. Under Swiss GAAP FER, the result from divestments (discontinued operations) therefore only contains the currency translation differences arising after 1 January The presentation and format of the balance sheet, income statement, statement of shareholders equity, and cash flow statement were adjusted in keeping with the requirements of Swiss GAAP FER. Prior periods were adjusted accordingly to facilitate comparability with the new presentation of the current reporting period (restatement). The repercussions of the above-mentioned adjustments for shareholders equity and the income statement of Komax are summarized in the following tables: Adjustment effects shareholders equity in TCHF Shareholders equity under IFRS Adjustments under Swiss GAAP FER Offsetting of goodwill against shareholders equity Offsetting of technology against shareholders equity as component part of goodwill (incl. deferred taxes) IAS 19 adjustments (incl. deferred taxes) Non-capitalization of deferred taxes from offsettable tax-loss carry forwards Shareholders equity under Swiss GAAP FER

8 Adjustment effects Group profit after taxes (EAT) in TCHF 2016 Group profit after taxes (EAT) under IFRS Adjustments under Swiss GAAP FER Transaction costs from acquisitions 192 Amortization of intangible assets IAS 19 adjustments (incl. deferred taxes) 963 Discontinued operations (effect of currency translation differences) 944 Impact of non-capitalization of deferred taxes from offsettable tax-loss carry forwards Group profit after taxes (EAT) under Swiss GAAP FER Key recognition and measurement assumptions Preparation of the consolidated financial statements requires the Board of Directors and Group Management to make estimates and assumptions, whereby such estimates and assumptions have an effect on the accounting principles applied and are reflected in the amounts stated under assets, liabilities, income, expenses, and related disclosures. Their estimates and assumptions are based on past experience and on various other factors deemed applicable in the current situation. These form the basis for reporting those assets and liabilities that cannot be measured directly from other sources. The actual values may differ from these estimates. The following material estimates are included in the consolidated financial statements: Recognition of revenue according to POC method 83 Current and deferred income taxes 88 Impairment of property, plant, and equipment 91 Impairment of intangible assets and goodwill 95 Contingent consideration 96 Provisions 96 Page Key events of the reporting period As mentioned in the Shareholders letter on pages 2 and 3, the year 2017 was characterized by strong growth in order intake and revenues, the acquisitions of Laselec and Practical Solution, as well as significant investment in research and development. The operating profit matches almost the prior-year figure and Group profit after taxes rose by 8.8%. The credit line of the syndicated loan agreement was increased from CHF 100 million to CHF 140 million in order to ensure the financing of the high investments. Mainly due to these investments, free cash flow resulted in a negative figure. With an equity ratio of more than 62%, Komax continues to be very robustly financed. With effect from 1 January 2017, Komax changed the accounting standard from IFRS to Swiss GAAP FER. The accounting policies disclose in detail that this change mainly had an impact on the valuation of goodwill, the employee benefits and the deferred tax assets. Events after the balance sheet date No significant events occurred between the balance sheet date and the approval of the consolidated financial statements by the Board of Directors on 8 March 2018 which might adversely affect the information content of the 2017 consolidated financial statements or which would require disclosure. 80

9 1 Performance In this section, we provide details of the 2017 result of the Komax Group. In addition to earnings per share, we also provide details on revenues, expenses, the financial result, and taxes. The operating profit (EBIT) of the Komax Group decreased from CHF 55.4 million in 2016 to CHF 55.1 million in The chart below illustrates the year-on-year change between the current reporting period and the prior-year. in CHF million EBIT 2016 Gross profit Personnel expenses Depreciation Operating expenses EBIT Segment information The Komax Group is a global technology company that focuses on markets in the automation sector. As a manufacturer of innovative and high-quality solutions for the wire processing industry, Komax helps its customers implement economical and safe manufacturing processes, especially in the automotive supply sector. All Group companies are active in wire processing, have a uniform client base, and are centrally managed. The Board of Directors and the Group Executive Committee, which make the key strategic and operating decisions, manage the Komax Group primarily on the basis of the financial statements of the individual companies, the Management Information System, and the consolidated financial statements. Due to the commercial similarity and interconnections of the Group companies, Komax presents its business in amalgamated form as a single segment, in accordance with Swiss GAAP FER

10 Up until the sale of the Medtech business unit in April 2016, the Komax Group had two segments. The corresponding segment information is set out below: in TCHF Wire 2 Medtech Group Wire 2 Medtech Group Net sales from external customers Net sales from other segments Total net sales EBIT Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including elimination of intersegment revenues and corporate costs. 1.2 Revenues a) Revenues by region The percentage breakdown of revenues by region is as follows: % Switzerland 19.9% Asia/Pacific % Switzerland 18.9% Asia/Pacific 18.6% North and South America 22.2% North and South America 10.5% Africa 7.4% Africa 48.8% Europe 49.2% Europe 82

11 b) Construction contracts In the current reporting period, sales of CHF 11.7 million (2016: CHF 23.3 million) were recorded from long-term construction contracts on the basis of the POC method. c) Other operating income in TCHF Own work capitalized Government grants Gains from the disposal non-current assets Other income Total other operating income Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Automated assembly and production contracts are measured according to the POC method, provided the assessment meets the requirements of Swiss GAAP FER 22 Long-term contracts. Although projects are assessed monthly and in good faith in accordance with comprehensive project management guidelines, subsequent corrections may be required. These corrections are made in the following period and may have a positive or negative impact on revenue in this period. 83

12 Recognition and measurement Revenue recognition: The Komax Group s consolidated income statement is compiled using the nature of expense method. Net sales comprise the fair value of considerations received or receivable for the sale of goods and services in the course of ordinary business activities after deducting VAT, returns, discounts, and price reductions, and eliminating intragroup sales. Revenues are recognized as described below. For any intermediated transactions, only the value of services provided by Komax itself is reported. Transactions with a number of individually identifiable component parts are recorded and valued separately. Sale of goods: Revenue from the sale of goods is recognized when risk and rewards of ownership have been transferred to the buyer. All expenses connected with sales are recognized on an accrual basis. Sale of services: Revenue from the sale of services is recognized in accordance with progress on the service according to the ratio of completed to still outstanding services to be performed during the financial year in which the services are rendered. Manufacturing contracts: Manufacturing contracts in the automated assembly and production business units, involving the customer-specific manufacture of systems, are valued according to the percentage of completion method (POC method) in accordance with Swiss GAAP FER 22. On the balance sheet, these are reported either under Trade receivables or Other payables, depending on the degree to which they are underfinanced or overfinanced. The percentage of completion is calculated according to the cost-to-cost method (costs incurred in relation to overall estimated costs of the contract). Anticipated project losses are recognized in full in the income statement. Any costs of debt capital are capitalized provided debt capital is raised for the purpose of financing the project and its costs can be directly attributed to a manufacturing contract. Leases with Komax as lessor: Contractual relationships in which Komax acts as lessor are reported as financial leases if all risks and returns associated with ownership are essentially transferred to the lessee. At the beginning of the lease, lease payments are recognized in the balance sheet in the amount of the net investment value arising from the lease. Revenue is recorded in the same way as the direct sale of goods. Financial income is spread over the term of the lease. Assets that are the subject of operating leases are reported in the balance sheet in accordance with their characteristics, and are written down at the normal rates that apply to assets of that type. Lease income is recognized in the income statement on a linear basis over the term of the lease. Leases with Komax as lessee: Only in exceptional cases does Komax act as lessee in financial lease agreements. A financial lease arises when the lessor transfers virtually all the risks and benefits associated with ownership of the leasing object to the lessee. At the beginning of the contract term, the object in question is recorded on the balance sheet as both an investment asset and a liability at its fair value or (if lower) at the net cash value of future leasing payments. Every lease instalment is broken down into financing costs on the one hand and repayment of the residual debt on the other, so that the interest rate remains constant for the residual liability. Financing costs are booked directly to the income statement as an expense. Capitalized leasing objects are depreciated over their estimated economically useful lives, or (if lower) over the contractual period in question. An operating lease agreement arises when a substantial proportion of the risks associated with ownership remain with the lessor. Payments for operating leasing agreements are booked to the income statement as an expense in a linear way for the entire duration of the agreement. Government grants: Government grants are recognized if it is likely that the payments will be received and Komax can fulfil the conditions attached to such subsidies. These are recognized in Other operating income, regardless of when payment is received, and on a pro rata basis in the period in which the associated costs are incurred, and charged to the income statement as an expense. Grants relating to an asset are deducted from the carrying amount. 84

13 1.3 Expenses a) Personnel expenses in TCHF Wages and salaries Share-based payments settled with equity instruments Share-based payments settled in cash Social security and pension contributions Other personnel costs (in particular training and development) Total personnel expenses Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). b) Other operating expenses in TCHF Expenditure on operating equipment and energy Rental expenses Repair and maintenance expenses Third-party services for development expenses Representation and marketing expenses Legal and consultancy expenses Shipping and packaging expenses Expenditure on administration and sales Other expenditure Total other operating expenses Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 1.4 Financial result in TCHF Financial income Interest income Exchange rate gains on foreign currencies Total financial income Financial expenses Interest expenses Exchange rate losses on foreign currencies Change in fair value of contingent consideration arrangements 0 79 Total financial expenses Result from associated companies Total financial result Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 85

14 Recognition and measurement Interests: Interest income and expenses are accrued using the effective interest rate method. 1.5 Non-operating and extraordinary result The non-operating result includes the income and expenses from non-operating properties. The extraordinary result contains expenses of CHF 3.6 million relating to an impairment of a loan granted to an associated company. In the corresponding prior-year period, the expenses incurred in connection with the restructuring at the Porta Westfalica site in Germany (CHF 2.4 million) and the result from the sale of the former Medtech business unit (CHF 1.3 million) are contained in the extraordinary result. Recognition and measurement Non-operating result: Non-operating result is expense and income which arise from events or transactions that clearly differ from the usual business activities of the organisation. Extraordinary result: Expense and income which arise extremely rarely in the context of the ordinary operations and which are not predictable are considered as extraordinary. 1.6 Taxes a) Income taxes in TCHF Current income taxes Deferred tax income (+) / tax expenses ( ) Total income taxes Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Analysis of the tax rate in TCHF 2017 % % Group profit before taxes (EBT) Expected tax expenses Impact of non-capitalized tax-loss carry forwards Utilization of non-capitalized tax-loss carry forwards Effect of changes in tax rate Tax credits / charges from prior-years Effect of non-deductible expenses Effect of non-taxable income Non-reclaimable withholding taxes Others Effective tax expenses Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 86

15 As the Group is internationally active, its income taxes are dependent on a number of different tax jurisdictions. The expected income tax rate is equivalent to the weighted average of tax rates of those countries in which the Group is active. Due to the composition of the taxable income of the Group, as well as changes in local tax rates, this Group tax rate varies from year to year. The expected tax rate based on the ordinary result was at 14.5% (2016: 15.5%). b) Deferred tax assets and liabilities in TCHF Property, plant, and equipment / intangible assets Trade receivables and inventories Provisions Other items Total deferred tax assets (gross) Offset against deferred tax liabilities Balance sheet deferred tax assets Property, plant, and equipment / intangible assets Trade receivables and inventories Provisions Other items Total deferred tax liabilities (gross) Offset against deferred tax assets Balance sheet deferred tax liabilities Net deferred tax assets (+) / tax liabilities ( ) Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including unrealized intragroup profit. The non-capitalized and unused tax-loss carry forwards expire as follows: in TCHF Within 5 years After more than 5 years Total Expiry of unutilized tax-loss carry forwards 31 December December This results in a deferred tax claim (not recognized in the balance sheet) for as yet unutilized tax-loss carry forwards of CHF 19.6 million (31 December 2016: CHF 22.0 million) as well as CHF 3.4 million (31 December 2016: CHF 3.5 million) not recognized tax credits. 87

16 Key recognition and measurement assumptions In determining the assets and liabilities from current and deferred income taxes, estimates must be made on the basis of existing tax laws and ordinances. Numerous internal and external factors may have favorable and unfavorable effects on the assets and liabilities from income taxes. These factors include changes in tax laws and ordinances, as well as the way they are interpreted, in addition to changes in tax rates and the total amount of taxable income for the particular location. Any changes may affect the assets and liabilities from current and deferred income taxes carried in future reporting periods. Recognition and measurement Deferred taxes: Deferred and future tax expenses are calculated on the basis of the comprehensive liability method. This method is based on the tax rates and tax regulations applicable on the balance sheet date or which have in essence been enacted and are expected to apply at the time the deferred tax claim is realized or the deferred tax liability is settled. Deferred and future taxes are calculated on the basis of the temporary differences in value between the individual balance sheets and balance sheets for tax purposes. Such differences primarily exist in the case of non-current assets, inventories, and some provisions. Deferred tax assets are recognized in the amount corresponding to the probability that the Group companies in question will generate sufficient future taxable income to absorb the relevant positive differences in the tax assets. Loss carry forwards: Future tax savings from offsettable tax-loss carry forwards are not capitalized. The use of these tax-loss carry forwards is recorded upon realization. Temporary differences on investments in subsidiaries and associates: Deferred tax liabilities are provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference cannot be determined by the Group and it is consequently probable that the temporary difference will not reverse in the foreseeable future. 1.7 Earnings per share (EPS) in CHF Group profit (attributable to equity holders of the parent company) Weighted average number of outstanding shares Basic earnings per share Group profit (attributable to equity holders of the parent company) Weighted average number of outstanding shares Adjustment for dilution effect of share options Weighted average number of outstanding shares for calculating diluted earnings per share Diluted earnings per share Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Earnings per share: Basic earnings per share are calculated by dividing the consolidated net earnings by the average number of shares outstanding during the fiscal year, excluding treasury shares. Diluted earnings per share are calculated by adding all option rights and non-vested equity rights which would have had a dilutive effect to the average number of shares outstanding. 88

17 2 Operating assets and liabilities In this section we describe the current and non-current operating assets and liabilities. Among other things, this includes further details on receivables, inventories, tangible assets, and intangible assets. 2.1 Current receivables a) Trade receivables in TCHF Trade receivables less provision for impairment Accruals for construction contracts less prepayments for construction contracts Receivables arising from POC Total Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Overdue trade receivables that had not been written down amounted to CHF 21.6 million on 31 December 2017 (31 December 2016: CHF 19.2 million). Their maturity structure is set out in the following table: in TCHF Number of days >120 Total as at 31 December as at 31 December Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). b) Other receivables In addition to prepayments to suppliers of CHF 1.1 million (31 December 2016: CHF 0.7 million), other receivables mainly comprise credits due from government organizations (tax authorities) and bills receivable. Recognition and measurement Current receivables: Receivables are recorded at nominal value. Impaired receivables are value-adjusted on an individual basis; no flat-rate value adjustments are calculated for the remaining portfolio. For manufacturing contracts of systems, the inventory includes all costs associated with the systems as well as the production costs. The order costs comprise all costs attributable to the contract from the date the order is received until the balance sheet date. The order proceeds per manufacturing contract are recorded as at 31 December according to the POC. 89

18 2.2 Inventories in TCHF Manufacturing components and spare parts Semi-finished goods / work in process Finished goods Gross value inventories less impairment Inventories Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Inventories: Inventories are valued at the lower of acquisition / production costs and net market value. Acquisition / production costs encompass all direct and indirect expenses incurred in bringing inventories to their current location or state (full costs). Discounts are treated as acquisition price reductions. For all inventory components, the ascertainment of value is undertaken for the most part in accordance with the FIFO method. The current market price in the sales market in question is assumed when determining net market value. 2.3 Assets held for sale The building in York (USA) that was reported under non-operating properties in the past, is shown as held for sale since the end of The sales process has been started at the end of 2017 and was already concluded in January In addition, the building in S. Domingos de Rana (Portugal) is also reported as held for sale and was therefore regrouped from the property, plant, and equipment. The sales process has also been started at the end of 2017 and is expected to be completed in the first quarter

19 2.4 Property, plant, and equipment in TCHF Undeveloped property Land Buildings Machines and equipment Other tangible fixed assets Assets under construction Total property, plant, and equipment Costs As at 31 December Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December Depreciation As at 31 December Additions Disposals Change in scope of consolidation Currency differences As at 31 December Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December Book values As at 31 December As at 31 December As at 31 December Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Property, plant, and equipment are tested for impairment at least once a year. To determine whether impairment exists, estimates are made of the expected future cash flows arising from use. Actual cash flows may differ from the discounted future cash flows based on these estimates. 91

20 Recognition and measurement Property, plant, and equipment: Property, plant, and equipment are accounted for at historical acquisition or production cost less accumulated depreciation. Borrowing costs that incurred during the construction phase through the financing of assets under construction, are part of the acquisition cost if they are material. Depreciation is linear over the expected service lifetime. Depreciation period Asset category Years Machinery 7 10 Tools 7 Measuring, testing, and controlling devices 5 Operating installations 10 Warehouse installations Vehicles 5 8 Office equipment 3 10 Information technology 3 5 Factory buildings 33 Office buildings 40 Land no depreciation 2.5 Non-operating properties Changes in gross values in TCHF Total as at 1 January Additions Regrouping to assets classified as held for sale Currency differences Total as at 31 December Changes in depreciation in TCHF Total as at 1 January Depreciation Regrouping to assets classified as held for sale Currency differences Total as at 31 December Net value non-operating properties Recognition and measurement Non-operating properties: Investment property encompasses land and buildings held with a view to generating rental income or for purposes of capital appreciation, and not for internal production purposes, the delivery of goods or the provision of services, administrative purposes, or sales in the context of ordinary business activity. Investment property is valued at acquisition or construction cost less cumulative depreciation. 92

21 2.6 Intangible assets a) Movements in the intangible assets in TCHF Software Patents Software in implementation Total intangible assets Costs As at 31 December Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December Depreciation As at 31 December Additions Disposals Change in scope of consolidation Currency differences As at 31 December Additions Disposals Change in scope of consolidation Currency differences As at 31 December Book values As at 31 December As at 31 December As at 31 December Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 93

22 b) Goodwill Goodwill is offset against Group shareholders equity upon the acquisition of a subsidiary or the interest in an associated company. Assuming a useful life of 5 years for trading companies acquired and 10 years for production operations acquired plus depreciation on a straight-line basis, the theoretical capitalization of goodwill would have the following impact on the consolidated balance sheet: in TCHF Goodwill subsidiaries Goodwill associated companies Total Goodwill subsidiaries Goodwill associated companies Total Historical costs as at 1 January Additions Disposals Currency differences Historical costs as at 31 December Theoretical accumulated depreciation as at 1 January Theoretical depreciation Theoretical depreciation on disposals Currency differences Theoretical accumulated depreciation as at 31 December Theoretical net book value 31 December The capitalisation and depreciation of the goodwill would have the following theoretical impacts on the shareholders equity and the group profit after taxes: in TCHF Shareholders equity according to balance sheet Theoretical capitalization of net book value of goodwill Theoretical tax impacts Theoretical shareholders equity in TCHF Group profit after taxes (EAT) according to income statement Theoretical goodwill depreciation Theoretical impact of goodwill disposals Theoretical tax impacts Theoretical Group profit after taxes (EAT)

23 Key recognition and measurement assumptions Intangible assets and Goodwill are tested for impairment if indicators reflect a possible impairment. To determine whether impairment exists, estimates are made of the expected future cash flows arising from use. Actual cash flows may differ from the discounted future cash flows based on these estimates. Recognition and measurement Software: Purchased software licenses are capitalized at acquisition or production cost plus costs incurred in readying them for use. The total acquisition cost is amortized on a linear basis over three to seven years. Costs associated with the development or maintenance of software are recorded as expenses at the time they are incurred. Patents: Patents are recognized at historical acquisition cost less cumulative amortization. Acquisition costs are written down in a linear way over patent life. Research and development: Research and development expenditure is fully charged to the income statement. These costs are contained in the positions Personnel expenses and Other operating expenses. Goodwill: Companies acquired over the course of the year are revalued and consolidated at the point of acquisition in keeping with standardized Group principles. The difference between the acquisition cost (including material transaction costs) and the prorated fair value of the net assets acquired is described as goodwill. Any potentially existing but not previously capitalized intangible assets taken over as part of the acquisition such as brands, technology, rights of use, or client lists are not separately recognized, but remain subsumed under goodwill. Goodwill can also arise from investments in associated companies, whereby this amounts to the difference between the acquisition cost of the investment and the prorated fair value of the net assets acquired. The goodwill resulting from acquisitions is directly offset against Group shareholders equity. If the purchase price contains components that are dependent on future results, these components are estimated as accurately as possible at the point of acquisition and then capitalized. In the event of deviations when the purchase price is definitively settled at a later date, the goodwill offset against shareholders equity is adjusted accordingly. In case of disposal, acquired goodwill offset with equity at an earlier date is to be considered at original cost to determine the profit or loss recognised in the income statement. 2.7 Other non-current receivables in TCHF Present value of minimum lease payments 0 46 Non-current loans to associates Contingent consideration Rent deposit and other non-current receivables Total Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 95

24 2.8 Other liabilities a) Other payables in TCHF Prepayments by customers Contingent consideration Current income tax liabilities Prepayments on construction contracts less accruals / deferrals in respect of construction contracts Liabilities arising from POC Other positions Total other payables Key recognition and measurement assumptions For the determination of the fair value of a contingent consideration, profit and revenue forecasts as well as the current exchange rates are used that might result in a higher or lower fair value measurement. In addition, the continued employment of certain selling shareholders was assumed. b) Current provisions in TCHF Total as at 1 January Additional provisions Change in scope of consolidation Amounts utilized during the year Unused amounts reversed Currency differences 18 1 Total as at 31 December Current provisions are warranty provisions that include material and personnel costs in relation to warranty work. Key recognition and measurement assumptions In relation to machines and systems already delivered, Komax calculates the necessary warranty provisions on the balance sheet date on the basis of analysis and estimates. The actual costs may differ from the provisions stated. Any differences may affect the provision carried for warranty events in future reporting periods and therefore the reported result for the period. Recognition and measurement Provisions: Provisions are formed if the Group has a current legal or constructive obligation arising from an event in the past, if it appears probable that the asset base will be negatively impacted by settlement of the obligation, and if the amount of the provision can be reliably determined. Provisions for warranties are based on past payments, revenues in prior-years and current contracts. Komax normally gives a one-year warranty on machines and systems. 96